NEW YORK (DTN) -- New York Mercantile Exchange oil futures are in retreat Monday morning on concern storage space for oil could run out across the globe due to building supplies amid strong production from the United States, Russia and in the Middle East.
The worry comes as Goldman Sachs sees West Texas Intermediate crude prices falling to the mid $20s barrel before prompting a strong enough demand response to cut down rising inventories. The bank said oversupplied market conditions could get worse next year.
Trade volume is expected to be thin Monday with traders squaring their books during this shortened trade week before the long Christmas holiday weekend. Traders are rebalancing portfolios ahead of the expiration of the January WTI contract later Monday afternoon with the WTI market is trading in contango.
At 8 a.m. CT, NYMEX January WTI was down 38 cents at $34.35 bbl, off a fresh seven-year spot low at $34.12. The ICE February Brent contract was down 62 cents at $36.26 bbl, off an 11-year spot low at $36.05. The NYMEX January ULSD futures contract was down 1.70 cents at $1.0901 gallon while January RBOB futures tumbled 4.09 cents to $1.2337 gallon.
The key issue for traders is that oil supply is relentlessly increasing. The latest weekly report from Baker Hughes said rigs in the United States drilling for oil rose 17 to 541 during the week ended Dec. 18 while data from the Energy Information Administration showed domestic crude production up 12,000 bpd to 9.18 million barrels per day, with crude inventories up 4.8 million bbl during the week ended Dec. 11.
Overseas, Iran and Libya are expected to increase production next year. Both countries are members of the Organization of Petroleum Exporting Countries, which earlier this month removed caps on its oil production. OPEC produced 31.4 million bpd last month.
Also, Russia's state-owned oil company Rosneft last week said it will boost production next year. Russia last month produced a post-Soviet high of 10 million bpd. There is concern storage space could be further tightened if production continues to increase.
"Oil market participants are concerned that the size of the current daily surplus may soon overwhelm available storage capacity," said a Barclays Capital note. "However, current crude oil time spreads do not signal an imminent requirement for expensive offshore storage. The surplus forecast for 2016 suggests that the contango in Brent could widen further from current levels.
George Orwel can be reached at firstname.lastname@example.org
© Copyright 2015 DTN/The Progressive Farmer. All rights reserved.